Mamma Mia. Where are those happy days? They seem so hard to find. The Greek tragi-comedic musical continues to play on continuous loop. Leading characters are still struggling to sing from the same song sheet, emitting only a discordant jumble of sound and fury to set investor nerves a jangling. Which would be entertaining, if it weren’t so potentially lethal for the global credit system and world economy.

“Hey,” I hear you ask, “didn’t those guys sort all this out last week?” Well, yes. And a couple of months before that, and once early last year. Greece is now onto its second of two €110 billion ($146 billion) bailouts arranged by the European Central Bank and International Monetary Fund. The first was approved in May last year, the second in July this year. Greek and European officials have been locked in furious negotiations ever since about the size of Greek budget cuts required in return for the money Greece needs to keep paying its bills.

In June, Greek protesters and police clashed violently in the streets outside the Greek Parliament as members voted in favour of a radical five-year austerity plan. Euro ministers are now insisting on another pound of flesh from Greek government spending in return for a bailout package to write down 50 per cent of its debts. This latest package also includes euro countries stumping up hundreds of billions to beef up the euro zone’s rescue fund – the European Financial Stability Facility – to €1 trillion, up from an original €440 billion.

How did the shining jewel of the Mediterranean become such an international touch point?

The Greek economy itself is small. At about $US300 billion its annual economic output is about a quarter the size of Australia’s. About one in five Greeks are employed in tourism, with shipping and food processing other big employers. Greece is one of the euro area’s biggest producers of cotton, rice and olives.

It is the potential ripple effects of a Greek default – if Greece is unable to keep making payments on its loans – that worry international investors. Losses would fan out across Europe, particularly to the predominantly French and German banks, and their shareholders, who bankroll Greece’s debts. Greek banks are also heavily exposed to Greek government debt, creating the potential for a run on the nation’s entire banking system should it default or exit the euro in a messy way. Either of these events would have a devastating impact on global investor confidence, pushing up the cost of all international borrowing, which could in turn make it hard for indebted Italy – Europe’s third-largest economy – to continue funding its debts.

European leaders refuse to countenance such a possibility. And so the citizens of Greece, already suffering double-digit unemployment, must accept more public sector job cuts and pension cuts.

There are two problems with this approach. The first is a political one. Such austerity is likely to continue fuelling civil unrest, meaning continued political instability and potential for future default.

The second is economic. Austerity policies, by removing demand from the economy, cripple the very growth needed to generate the revenues to keep meeting debt repayments. Bailouts are arguably a Band-Aid solution to keep an essentially insolvent nation lurching from one budget crisis to the next trying to make ends meet. The Greek economy could be on the ropes for decades to come and that is hardly a recipe for stability.

Having trouble keeping up with the euro crisis? Get used to it.

THE IRVINE INDEX

18.5 per cent
Projected jobless rate in Greece next year, according to the International Monetary Fund, second in the euro zone only to Spain’s projected 19.7 per cent.

5%
Percentage by which the Greek economy is expected to shrink this year after shrinking 4.4 per cent last year.

29th
Greece’s rank on the UN Human Development Index, putting it in the ‘‘very high’’ group of countries. Australia ranks second only to Norway on this global index.

$US306 billion
Greek gross domestic product last year.

11.3 million
Population of Greece.

23%
Interest rate on 10-year Greek government debt, up from about 5 per cent before the Greek debt crisis began in early 2010.

60%
Percentage of Greeks who oppose the harsh austerity terms of the latest bailout plan.

166%
Greek government gross debt as a percentage of gross domestic product.